Breaking: Mossberg License Agreement/ Not All Agreements are Created Equal


I just received some additional information on license agreements presented to the defendants in the ongoing Mossberg patent lawsuit. Of course we reported the validity of that patent is very much in question which hasn’t changed.

What’s interesting is since the defendants are all under the same judge now communication between those being sued seems to have increased. As I read this license agreement I was particularly struck by the amount of money involved! Now I’m no expert in what licensing for this kind of product cost but it sure seems like a lot of money for a trigger group. I leave that up to the readers to decide if it seems excessive or not.

One thing I found out is not all license agreements are the same.The dollar amounts vary between defendants. How much different I’m not sure but from talking with our contacts apparently it varies a good deal. Another stipulation is these agreements are non-negotiable. That was made clear by Mossberg to all of the defendants.

A copy of one such agreement is below. The company name has been removed.

NON-EXCLUSIVE LICENSE AGREEMENT

This Non-Exclusive License Agreement (hereinafter “Agreement”) is entered into on this ___ day of __________ 2016 by and between O.F. MOSSBERG & SONS, INC., a Connecticut corporation, having a principal place of business at 7 Grasso Avenue, North Haven, CT 06473 U.S.A. (hereinafter “Licensor”), and —————-a corporation organized under the laws of Nevada, having a principal place of business at ————USA, having a (hereinafter “Licensee”). Licensor and Licensee are sometimes referred to hereinafter collectively as the “Parties” and individually as a “Party.”

WHEREAS, Licensor owns U.S. patents regarding certain modular trigger assemblies (a.k.a. drop-in triggers) for firearms, identified in attached Exhibit A (hereinafter the “Licensed Patents”);

WHEREAS, there is a litigation (hereinafter “the Litigation”) between the Parties, captioned O.F. Mossberg & Sons, Inc. v——— Inc., Civil Action -VAB, pending before the U.S. District Court for the District of Connecticut; and

WHEREAS, the Parties desire to resolve their differences and end the Litigation by entering into this License Agreement; and

NOW THEREFORE, in consideration of the promises and agreements set forth below, the Parties agree as follows:

1. DEFINITIONS. As used in this Agreement, the following terms shall have the following meanings:

a. “Licensed Patents” means all of Mossberg’s patents listed on attached Exhibit A;
b. “Licensed Products” or “Licensed Product” means: the existing trigger assembly(ies) of Licensee listed on attached Exhibit B, which fall within the scope of any non-expired claim of the Licensed Patents;
c. “Territory” means USA; and
d. “Claim” or “Claims” means, in technical terms, the scope of the protection conferred by a patent, or the protection sought during a patent application or during reexamination of the patent. For example, U.S. Patent 7,293,385 originally contained ten Claims, Claims 1-10, when that patent issued in November 13, 2007.
Other terms are defined elsewhere in this Agreement.
2. “FIELD OF USE” LICENSE.

a. Licensor hereby grants to Licensee for the “Term” (defined below) of this Agreement a non-exclusive license to use the Licensed Patents to manufacture and/or offer to sell and/or sell the Licensed Products within the Territory. This type of license is known as a “field of use” license.

b. Licensee does not have the right to sublicense any of the licensing rights granted in Section 2.a. without Licensor’s prior written approval.

3. TERM OF AGREEMENT. Unless terminated earlier pursuant to Section 12, or for other cause, this Agreement shall run until the last of the Licensed Patents has expired, lapsed or been canceled. The duration of this Agreement is the “Term” of this Agreement.

4. REEXAMINATIONS OF U.S. PATENT 7,293,385.

a. Timney Triggers, LLC and/or Timney Manufacturing Inc. (collectively, “Timney”) have challenged one of the Licensed Patents, U.S. Patent 7,293,385, multiple times at the U.S. Patent and Trademark Office (“Patent Office”) by seeking reexaminations. As indicated in Section 1 above, U.S. Patent 7,293,385 originally had ten Claims, Claims 1-10. The Patent Office held patentable (recertified) Claims 1-9 and held patentable additional new Claims 11-15, as a result of a first ex parte reexamination proceeding which Timney requested. See attached Exhibit C, which is a copy of Ex Parte Reexamination Certificate No. US 7,293,385 C1 issued August 20, 2014.

b. The Patent Office has merged two later ex parte reexamination proceedings (Control Nos. 90/013,341 and 90/013,655) of U.S. Patent 7,293,385 which Timney requested. Those merged proceedings are currently pending.

5. ROYALTY PAYMENTS. In return for the licensing rights recited in Section 2:

a. Licensee shall pay to Licensor a continuing royalty (“Royalty”) per sale of any of the Licensed Products, whether the Licensed Products are sold alone or as part of a firearm, based upon the following rates:

i. Two Dollars and Fifty Cents in U.S. currency ($2.50 USD) – For example if Licensee sells three of the drop-in triggers listed in Exhibit B, the Licensee’s total Royalty payment due for the sale(s) of those three triggers would be $7.50 USD; and

ii. The $2.50 USD rate would be increased to Five Dollars in U.S. currency ($5.00 USD) per sale of any of the Licensed Products sold after:

1. Any Claim pending during the merged (or, if occurring, later separated) reexamination proceedings (Control Nos. 90/013,341 and 90/013,655) is allowed or held patentable after July 1, 2016 by an
Examiner or a panel in the Central Reexamination Unit at the Patent Office; or

2. Any rejection by an Examiner or a panel in the Central Reexamination Unit of any Claim (or Claims) in the merged (or, if occurring, later separated) reexamination proceedings (Control Nos. 90/013,341 and 90/013,655) is overturned or reversed on appeal by the Patent Trial and Appeal Board (at the Patent Office) or the Court of Appeals for the Federal Circuit; and

3. Licensor provides notice to Licensee of any ruling described in Section 5.a.ii.1. or of any ruling overturning or reversing a rejection, as described Section 5.a.ii.2., and Licensor provides a copy of the ruling to Licensee.

b. Within forty-five (45) days following the end of each calendar quarter (“Preceding Quarter”), Licensee shall pay Licensor its Royalty for all payments on sales received by Licensee during the Preceding Quarter. Licensee shall provide concurrently a report (“Statement”), in a form acceptable to Licensor, breaking down the shipment of Licensed Products to retailers (e.g., by item name and number sold) sufficiently for Licensor to determine how the Royalty for the Preceding Quarter was derived. Such Statement shall be furnished by Licensee whether or not any Product has been shipped during the preceding calendar quarter.

c. Royalty payments shall start in 2016 for all sales of Licensed Products occurring on or after July 1, 2016. Late Royalty payments shall incur a late fee equal to 0.005 multiplied by the amount due, compounded daily, for each day such payment or accounting is delayed.

d. During 2016 and each remaining calendar year during the Term, Licensee agrees that its Royalty payments for that year shall total at least the following (“Minimum Royalty”):

i. Twelve Thousand Dollars and Five Hundred Dollars in U.S. currency ($12,500 USD) for 2016; and

ii. Twenty-five Thousand Dollars in U.S. currency ($25,000 USD) thereafter.

In the event that Licensee’s actual Royalty payments for any calendar year are less than the Minimum Royalty scheduled for that year, Licensee may pay Licensor the difference within forty-five (45) days after the end of that year. If the Minimum Royalty amount is not met, Licensor may, at its sole option, terminate the licensing rights granted under this Agreement.

e. Past Damages Forgiven.

i. Neither Licensee nor any of its officers or employees shall be liable for any damages and/or royalties arising from any manufacture and/or offer for sale and/or sale by Licensee of the Licensed Products before July 1, 2016.

ii. Since Mossberg has forgiven any past damages and/or royalties before July 1, 2016, arising from any manufacture and/or offer for sale and/or sale by Licensee of the Licensed Products before July 1, 2016, Licensee agrees not to challenge and/or assist in any challenge of any of the Licensed Patents in any forum.

6. LICENSEE’S OBLIGATIONS. During the Term of this Agreement, Licensee shall:

a. Use its best efforts to promote and sell the Licensed Products as outlined herein;

b. Meet or exceed the Minimum Royalty requirements;

c. Maintain such records as, under generally accepted accounting principles, can enable the Royalty payments due under this Agreement to be accurately determined;

d. Maintain at all times the financial solvency, stability and integrity of its business and operations; and

e. Make such filings and take such actions as may be required to qualify to do business under all applicable laws and regulations.

7. RIGHT TO AUDIT. No more than once per year, Licensee shall permit Licensor, through a duly authorized accountant, upon ten (10) days notice and during reasonable business hours, to examine and make copies or extracts from any books, files, records, and accounts in the possession or under the control of Licensee, relating to the sale of the Licensed Products. Licensor shall pay for each inspection unless a variation or error exceeding $2500 USD, or the equivalent, is discovered in the course of any inspection. In that event, Licensee shall bear the cost for the inspection. Licensor shall not use any information gathered from such audit other than to confirm compliance with the terms of this Agreement and shall not disclose any gathered information to any third party.

8. WARRANTIES, INSURANCE AND INDEMNIFICATION.

a. Licensor warrants it is the sole owner of the Licensed Patents. Further, Licensor has the right and authority to issue the licensing rights granted under this Agreement.

b. Licensee warrants and represents that the Licensed Products which Licensee manufactures, sells or distributes hereunder, shall be in all respects, reasonably fit for their intended use by the persons to whom such Licensed Products are intended. If at any time Licensor reasonably concludes that the foregoing warranty has been or may be breached it shall have the right without prejudice to its other rights and remedies, to terminate this Agreement, subject to the curing provisions herein. The foregoing warranty shall survive the termination of this Agreement.

c. Licensee hereby indemnifies Licensor against any and all claims, damages, attorneys’ fees, and related costs arising from Licensee’s manufacturing, offering for sale and advertising of the Licensed Products, during the Term of this Agreement, and for a period of one (1) year after its termination, and agrees to maintain insurance to protect against any such claims, damages, attorneys’ fees and costs. The insurance coverage shall be in amounts and have terms that are satisfactory to Licensor. The initial limits of such insurance shall be the equivalent of $2,000,000 USD minimum per year in the aggregate, with the equivalent of $1,000,000 USD minimum allocated per occurrence. Licensee shall provide to Licensor proof of such insurance coverage within thirty (30) days after this Agreement is fully signed. Thereafter, Licensee shall provide annual proof of such insurance coverage by January 1st of each year of the Term of the Agreement.

d. Licensee hereby agrees to indemnify and hold harmless Licensor and its officers, directors, employees, agents and assigns (the “Indemnified Parties”) for, from and against: (i) all liabilities, obligations, losses, actual and consequential damages, judgments, claims, deficiencies, penalties, taxes and other charges incurred by the Indemnified Parties arising out of or resulting from Licensee’s performance or nonperformance of this Agreement, or from any default in the performance by Licensee of its obligations hereunder; and (ii) all costs and expenses (including without limitation, reasonable attorney’s fees) relating to the foregoing.

9. COST OF DEVELOPMENT, MANUFACTURING AND MARKETING. Licensee shall have the sole responsibility and obligation for the cost of development, manufacturing, packaging, distributing, selling and advertising of the Licensed Products, which Licensee manufactures or markets. “Cost of development,” as used herein, includes, without limitation, the cost of artwork, photography and related art services, from concept stage to final product, whether such materials and services are furnished directly by Licensee or by Licensor (on Licensee’s behalf at Licensee’s expense).

10. USE OF INTELLECTUAL PROPERTY. During the Term of this Agreement:

a. Licensee shall use all appropriate patent notices (e.g., US PAT 7293385 C1) as directed by Licensor.

b. For quality review, Licensee shall send annually to Licensor a representative sample of each of the Licensed Products.

11. CONFIDENTIAL INFORMATION AND INTELLECTUAL PROPERTY.

a. During the Term of this Agreement and for a period of five (5) years thereafter, Licensee shall at all times keep confidential the terms and conditions of this Agreement. Licensee acknowledges Licensor’s sole and exclusive right, title and interest in and to the Licensed Patents, despite any use by Licensee. Licensee, its officers, employees, agents or representatives, shall not undertake any act or do anything which will contest or in any way impair or attempt to impair any portion of Licensor’s right, title and interest in and to the Licensed Patents, or undertake any act or do anything which will discredit, disparage or bring into substantial disrepute any of the same. Licensee shall own any improvement to the Licensed Products or the Licensed Patents developed by Licensee.

12. TERMINATION. This Agreement shall terminate if:

a. Upon notice from Licensor to Licensee in the event Licensee at any time: (i) ceases to conduct its business; or (ii) breaches any provision of this Agreement and said breach, if curable, is not cured by Licensee to Licensor’s full satisfaction within sixty (60) days of Licensee’s receipt of notice thereof from Licensor; or

b. Licensor may unilaterally and immediately terminate this Agreement, without notice to the Licensee, in the event that: (i) Licensee becomes insolvent; (ii) Licensee admits its inability to pay its obligations as they become due; (iii) Licensee makes an assignment for the benefits of creditors, files a voluntary petition in bankruptcy, or is adjudicated bankrupt; (iv) a receiver or trustee is appointed to take possession of a substantial part of the assets of Licensee; or (v) a moratorium or interruption in the payment of bills by Licensee is ordered by a court or agency with competent jurisdiction; or

c. Licensor also may unilaterally and immediately terminate this Agreement in the event there is any deliberate deficiency in Licensee’s reporting that affects royalties or if any warranty, representation or covenant made by Licensee hereunder, or any information as to the Licensed Products’ quality or safety provided by Licensee is false or misleading; or

d. Licensee may unilaterally terminate this Agreement upon providing notice to Licensor that Licensee has stopped making and/or offering for sale and/or selling all the Licensed Products. Licensee’s royalty requirements, including the Minimum Royalty, are still in effect for the calendar year in which the termination occurs; also, also any unpaid royalties for past years would still be due.

13. EFFECTS OF TERMINATION.

a. Upon the termination of this Agreement for any reason, Licensee shall (except as otherwise provided below) cease acting or holding itself out as a licensee of the Licensed Patents or as an Authorized Licensee of Licensor.

b. LICENSOR WILL HAVE AN OPTION TO PURCHASE LICENSED PRODUCTS IN THE LICENSEE’S POSSESION, AT COST PLUS TEN PERCENT (10%), WITHIN THIRTY (30) DAYS FOLLOWING THE TERMINATION OF THIS AGREEMENT. IF THE OPTION TO PURCHASE IS NOT EXERCISED, THE LICENSEE WILL LIQUIDATE THE PRODUCT WITHIN THE TERRITORY.

c. Sections 5, 6.a.-6.c., 6.d. (for two years), 7, 8, 11, 13 and 16 shall survive any termination of this Agreement.

14. RELATIONSHIP OF THE PARTIES. Licensee acknowledges that: Licensee is not an agent or employee of Licensor; Licensee shall not hold itself out as an agent or employee of Licensor; and Licensee has no authority, whether express or implied, to assume or create any obligations on behalf of Licensor. Licensee shall bear all of its own costs and expenses incurred in connection with the performance of this Agreement.

15. FORCE MAJEURE. No Party shall be liable for any loss, damage, detention, delay or failure to perform its obligations hereunder, in whole or in part, resulting from causes beyond that Party’s control, including without limitation, fires, strikes, insurrections, riots, embargoes, delays in transportation, or requirements or regulations of any federal, provincial, state or local governmental body or military authority which would render compliance with this Agreement contrary to law or unreasonably burdensome.

16. MISCELLANEOUS.

a. Notices: All notices, requests, demands and other communications required or permitted to be given or made hereunder shall be in writing and shall be deemed to have been duly given via on the date of delivery to a nationally-recognized overnight courier service (e.g., Federal Express or UPS), in each case, addressed to:

For Licensor: For Licensee:

O.F. Mossberg & Sons, Inc. .
7 Grasso Avenue
North Haven, CT 06473
Attn: President Attn:
with a copy to: with a copy to:

Joseph H. Bartozzi
Vice President and General Counsel O.F. Mossberg & Sons, Inc. 7 Grasso Avenue
North Haven, CT 06473 Attn:
or to any whatever address noticed by a Party.

b. Entire Agreement: This Agreement, together with attached Exhibits A, B and C, contains the entire understanding and agreement between the Parties relating to its subject matter. It supersedes all prior and contemporaneous oral or written understandings or agreements relating to its subject matter.

c. Amendment: This Agreement may be amended only in writing signed by both
Parties.

d. Heirs and Successors: This Agreement shall be binding upon and inure to the benefit of the Parties hereto, and their respective personal representatives, heirs, successors and permitted assigns.
e. Non-Assignability: Licensee may not assign its rights or delegate its duties under this Agreement without Licensor’s prior written consent.

f. Severability: If any provision of this Agreement is finally determined to be invalid, illegal or unenforceable by a court of competent jurisdiction, such provision shall be deemed to be severable from the remainder of this Agreement, and shall not cause the invalidity, illegality or unenforceability of the same.

g. Jurisdiction and Governing Law: This Agreement shall be governed by and construed in accordance with the laws of the state of Connecticut, USA, without giving effect to conflict of laws provisions thereof. Any action, suit or proceeding arising under this Agreement shall be brought in the U.S. District Court for the District of Connecticut, to whose jurisdiction (including in personam) both Parties consent. The Parties hereby agree that any related ruling by a court (in the USA) shall be adopted to the fullest extent possible by any court outside the USA.

h. Attorneys’ Fees: In the event that litigation occurs to enforce any provisions contained herein, the Parties hereby agree that the prevailing Party in any final adjudication by a court shall be entitled to its reasonable costs and expenses, including attorneys’ fees.

17. WITHDRAWAL OF COMPLAINT. Licensor filed a Complaint to initiate the Litigation. Upon the execution of this Agreement by all Parties, Mossberg will allow the Complaint to lapse, thus ending the Litigation. Each Party shall bear its own attorney’s fees, costs and expenses relating to the Litigation.

****************************
IN WITNESS WHEREOF, the Parties have duly executed this Agreement in duplicate. The last Party signing this Agreement shall fill in the date of its/his signature in the initial paragraph of this Agreement. That date shall be considered the starting date for the Agreement.

O.F. MOSSBERG & SONS, INC.

By: By:
Printed or Typed Name: Printed or Typed Name:

Title: Date:

Title: Date:

[94122G.370/Non-Exclusive

EXHIBIT A

LICENSED PATENTS

U.S. Patent Numbers Issue Dates
6,722,072 April 20, 2004
7,162,824 January 16, 2007
7,293,385 C1 US Patent 7,293,385 B1 issued November 13, 2007 with Claims 1-10; Ex Parte Reexamination Certificate No. US 7,293,385 C1 issued August 20, 2014 with both Claims 1-9 and additional Claims 11-15 held patentable; Certificate of Correction (for Ex Parte Reexamination Certificate No. US 7,293,385 C1) issued September 16, 2014.

EXHIBIT B

EXISTING LICENSED
PRODUCTS OF LICENSEE

Manufacturer Model Number or Name

EXHIBIT C

EX PARTE REEXAMINATION
CERTIFICATE NO. 7, 29



Phil White

Retired police officer with 30 years of service. Firearms instructor and SRU team member. I still instruct with local agencies. My daily carry pistol is the tried and true 1911. I’m the Associate Editor and moderator at TFB. I really enjoy answering readers questions and comments. We can all learn from each other about our favorite hobby!


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  • PK

    Royalty minimum ($12,500 this year, $25,000 subsequently) kills it for anyone not making a whole mess of drop in units, and that’s their intention. Squeeze out the little guys.

    The yearly audit by Mossberg is a dealbreaker, as well. So is the two million dollar insurance specific to indemnify Mossberg for a third party product. What an awful license scheme.

    If it were $2.50 a unit, or even the post-2016 $5 a unit, royalty, they’d get people to license and there wouldn’t be a lawsuit.

    • Seems like a heck of a lot! That audit stipulation would fire me up.

    • Audits are hardly a deal breaker, and are normal for such agreements.

      Typically you just give them a database extract from your ERP system. I’ve done at least a dozen and it normally takes me about a half day or a day to do (most of which is complying with format and upload requirements).

      • MattW

        Agreed, right-to-audit clauses are standard language for just about any financial contract and hardly a reason to be fired up.

        I also agree the royalty minimum is really NOT that much money unless the party to this agreement is some guy working out of his garage.

        Finally, varying terms by licensee is also completely normal based on the licensee’s size, structure, and the negotiated terms of the agreement.

        I don’t see the big deal here.

    • Marcus D.

      It works out to 10,000 trigger groups per calendar year at $2.50 for the licensing fee, half that if it goes up to $5.00. If we assume 5,000 units at a unit price of $185 (which I estimate is about average, excluding the Giessels), that is $925,000 in gross sales. The royalty works out to maybe 2.5 to 3 percent of gross. So what you have to know in evaluating how onerous it is the unit cost to the manufacturer, and ultimately the profit margin per unit. I find it difficult to believe that these devices have a low profit margin, and that instead the margin is at least 50% of MSRP, if no t more. So although it sounds like a lot of money, any successful manufacture should be easily able to make these payments. There are, after all, millions of rifles out there.

      The insurance is not really an issue in the larger world, since most manufacturers carry products liability coverage these days, and a $10 million limit is not particularly high. Moreover, the risk of injury is, I would assume given a lack of news about accidents involving non-Remington triggers that the risk of loss is low, so the insurance cost will be similarly low.

      • Harry’s Holsters

        I agree. $25,000.00 is peanuts when you get into CNCing batches of product. You have to do a run of a certain size just for it to make sense from a manufacturing standpoint. I doubt there are guys making drop in triggers in small enough quantities where $25k would keep them from starting a business or put them out of business. If it is their product must be on the ragged edge of profitability.

  • LG

    I would tell them to see me in court, if they ever get there. The patent is questionable at best. Illegitimi non carborundum!

  • DanGoodShot

    Mossberg’s trying to squeeze the lemon.

  • Devil_Doc

    I’m no lawyer, but it seems to me that this whole thing boils down to whether or not Mossberg has a claim. Does it matter that other people were using the idea of a trigger pack/pin hole alignment prior to the patent claim? This is all kinds silly, but didn’t Sam Colt patent grip screws? I’d love it if a legal mind would chime in here…

    • Marcus D.

      Partly true, and partly not. Patent Litigation is expensive. Hundreds of thousands of dollars expensive. And a judgment affirming the patent catastrophic, as it would allow Mossberg to collect damages for every trigger group ever sold from each infringing manufacturer, perhaps millions of dollars catastrophic. So the question is, do you feel lucky? Well, do ya? Thousands now to avoid the risk of millions later…might not be so bad a deal in the right circumstance.

  • JS

    This contract is pretty standard for this type of thing. Audits are pretty much always required, and the actual amount of the royalty is relatively small compared to many license agreements. A pretty standard agreement may call for everything in here, but be based of a percentage of cost of goods sold or something like that (although a flat fee isn’t uncommon either). Many licenses are in the 10-15% of cost of goods sold range. This is well below that.

  • jamezb

    I can’t believe Mossberg has initiated attacks within the industry as we face the threat of anti-gun legislation from the current and very likely the coming administration as well.
    Manufacturers, particularly small shops, need to be saving for legal defense funds, to support lobbying efforts, and to donate to pro-gun campaigns..
    ..Not defending themselves against being forced to feed the greed of an industry heavy-hitter.
    I’ll never buy another Mossberg product as long as I live, and I wish I could make them buy back the 20 or so Mossberg guns I’ve owned in the past! I recently disposed of the last model 500…GOOD RIDDANCE!